gtag('config', 'UA-12595121-1'); Small Retail Traders Evade Taxes by Exploiting Loopholes in Fiscal Device Usage – The Zimbabwe Mail

Small Retail Traders Evade Taxes by Exploiting Loopholes in Fiscal Device Usage

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HARARE – Small retail traders in Zimbabwe have found innovative methods to avoid paying taxes, despite authorities’ recent success in compelling many operators to acquire fiscalised devices designed to improve tax transparency.

Sources reveal that most small traders are now keeping their fiscal devices disconnected from the internet to prevent creating transaction records that would reveal their true tax liabilities. Fiscalisation involves using approved devices to record taxable sales and other tax data in a read-only memory format, which is then used by the Zimbabwe Revenue Authority (Zimra) to administer Value Added Tax (VAT).

These fiscalised gadgets record information that cannot be altered once stored. Registered operators are supposed to ensure these devices are connected to Zimra servers to transmit this data. However, small and informal traders, who handle significant amounts of US dollar cash transactions daily, often evade taxes by switching off these devices during trading hours.

Historically, small traders resisted Zimra’s demands to adopt fiscalised devices, fearing exposure of their widespread tax evasion. When caught, traders often claim a lack of internet connectivity or the inability to afford continuous data, given Zimbabwe’s high internet costs. Though penalties for non-compliance are punitive, they are often outweighed by the taxes these traders would owe on their US dollar transactions.

Stakeholders argue that the current tax framework for informal traders is complex and unsustainable, calling for reforms to enhance compliance and contributions to the national treasury.

“Traders just do not keep their fiscalised devices online. When Zimra officials visit, they claim they lack an internet connection, citing high data costs,” said an anonymous source. The traders prefer paying fines over paying accurate taxes.

According to the Zimbabwe National Chamber of Commerce, the informal economy constitutes approximately 64.1% of Zimbabwe’s GDP, valued at around $42 billion in purchasing power parity (PPP). The International Monetary Fund estimated that in 2022, about 5.2 million people were engaged in Zimbabwe’s informal economy, a significant number of whom are women.

Attempts to obtain comments from Zimra were unsuccessful. However, Denford Mutashu, president of the Confederation of Zimbabwe Retailers, noted that most small traders have acquired fiscalised devices as required by law but face difficulties with the current tax model. While these traders are gradually complying with some tax requirements, they argue that meeting all obligations would render their businesses nonviable.

Mutashu highlighted ongoing discussions with authorities, including the Ministry of Industry and Commerce, to develop a sustainable presumptive tax rate payable monthly or quarterly. “We have engaged with Zimra, and they have been helpful. Discussions with the Ministry of Finance and banks have also been productive,” Mutashu said.

He stressed that a simplified and affordable taxation model could see small traders contributing significantly to the national revenue. Traders have proposed a presumptive tax model, arguing that the current average presumptive tax of $1,000 is too high for many.

Mutashu pointed out that formal businesses face numerous challenges, including competition from small traders who prefer cash transactions and can offer more competitive prices. He noted that policies favoring small traders are essential for their survival and the overall economy’s health.

The retail sector, anticipated to contribute over 22% to the economy, might see reduced contributions due to the difficulties faced by formal traders, including issues with foreign currency access and exchange rate volatility. Mutashu emphasized the need for favorable policies to support both small and formal traders amidst these challenges.